All Forum Posts by: William Robison

Hello @Charles Worth

In my opinion, much of this is going to be property specific. I cant say that I would use a generalization on this as much as the analysis guys and gals would prefer.

In my experience, we renovate houses with the investor making the decisions. If we know that the roof is older, but still has useful life remaining, then it is their decision to replace now or wait until slightly later.

Water heaters, furnaces, appliances, these are all the same decision process.

If you purchase from a good provider that is open and honest about showing the true condition of these expensive items, then you are better able to justify a lower or higher capex expectation. In our model, we have the approach to take care of the cosmetics, but also just an importantly or more importantly really, are these mechanicals that can be costly into the future.

Understanding that a house will always need something well into the future is one thing, but getting an TRUE idea of the useful life remaining is a critical element.

We now use new appliances in our renovations rather than cheaper, used models. We get a very basic warranty, but we also can have the expectation of lifespan. If a water heater is beginning to rust at the bottom, or show other signs of aging, or the label just tells us that it is 10+ years old, we prefer to replace now than to deal with that call later.

In the end, your property professional should be a guide to the true elements of risk for a property over the next few years.

All the best with your investments.

@Pat L. 

Comparing TKs....I would also consider putting the hard facts numbers into a different spreadsheet and comparing them.  Take rent, taxes, insurance into account, but use your own estimate of vacancy and maintenance percentages.  10% is safe on each.  Some providers have a knack for running these as low as 5% to make their numbers look stronger.

Then, an even more important factor is to compare neighborhoods.  When someone calls a neighborhood a B property, what does that really mean.  A B prop may not be a B prop.  Compare your own statistics.  Look at crime stats.  Look at school rankings.  These will tell you much more about the property than the "glossy brochure"  

All the best with your investments....keep us informed.

Ditto the comments about Ruskin.  Its an area that we strongly avoid.  Tough to succeed in that market area without being extremely hands on.  

Finding good paper returns might be just that....paper returns.  Getting a tough area to actually hit projections is often a challenge.

Any new updates or other suggestions?

That is an accurate statement.  Most Realtors do not understand the wholesale model.  Others realize that there is a high risk in working with a client that does not have actual ownership.  There is no issue working with an investor that actually closes the transaction, but there can be significant issues for them if the property is just under a wholesale contract.

Reposted from a reply I made in 2014 on similar topic.  

Defining a property by class, such as A, B C or D is nearly impossible. Each person will have their own definition of the differences between the properties. To someone that buys brand new fourplexes, that is considered an A prop, but that same person will think that a 10 year old building may be a B prop in the same area.

We label houses in terms of 4/3/2 meaning a property with 4 bedrooms, 3 bathrooms and a 2 car garage. I believe that our industry should coin a new metric of similar distinction. Rather than simply an arbitrary property class based upon a single individuals perspective, I think there should certain elements placed into this new metric.

For example:

The first number could be a reflection of greatschools.org number for the school rating. In Riley's example, he has a property in a 6/10, so the first number would be a 6.

The second number could be a reflection of the age of a property, since this will have a impact on repairs into the future. A new building would be a 0, and 100 year old build would be a 10. At 40 years old, a 4.

The third number should be a reflection of the economics of the immediate area. Zip code based or even narrower if possible. Say a community has an avg household income of 50998 and the overall greater market area has an avg of 41877. 50998/41877 gives a property a 1.2 rating in economics.

A fourth number could be the rent rate versus to community average. Say a property brings in $695 rent and the market area average for a 2 bedroom from rentometer.com has an average of $577, that would mean that the subject must have some superiority to the average in that community. In this example, 695/577 is 1.2.

So, given these examples, this property would be rated a 6/4/1.2/1.2 as reflected by schools/age/economics/rent.

Certainly this metric could include a lot more data, but simplicity is the key. This metric could also be adjusted to better suited analysis and is just what my mind could come up with at 6am this morning.

All the best with everyones investments.

@Hattie Dizmond 

Kudos to these comments.  Understanding your sub-markets and micro-markets is critical.  I see quite a few unscrupulous companies trying to take advantage of even sub-markets.  Find a partner that is willing to work with you over the long term that understands these micro-markets.  

I was asked just today for a map of market areas.  Its subjective as previously mentioned, but there is a lot to be said for a good boots on the ground team.  Even if I wanted to develop a market map, it wouldnt be possible without it being a HUGE map to show the differences in these sub-markets.  I too start with the school district, then break down the markets from that starting point.  DFW and KC are quite similar in those respects.

I agree with my fellow Kansas City professionals.  That price is on the high side for that area.  I would look at quite a few other neighborhood sales recently to get a better idea of the value.  As to the mention of buying the property prior to renovations for a price in the $30s, that is a solid business plan.  Finding and working with a team that can assist in finding properties to buy on the cheap, then get renovated and tenants placed will often yield a better overall return.  With the right financing, it doesnt take that much more in cash to get to that spot either.

All the best with your investments.

Thanks @Mehran K. I'm actually in Kansas City and do have quite a number of resources for investors in the KC market area.

was the property in a state that requires notary signatures on the purchase deed?